TIDMRTHM
RNS Number : 1541P
RhythmOne PLC
15 November 2016
RHYTHMONE PLC ANNOUNCES UNAUDITED
FIRST HALF FINANCIAL YEAR 2017 RESULTS
Company Exceeds Expectations, Led by 45% Growth of "Core"
Programmatic Products, and Reaffirms Return to Full-Year
Profitability in Financial Year 2017
London, England and San Francisco, CA - 15 November 2016 -
RhythmOne plc (LSE AIM: RTHM, "Company" or "Group"), today reports
unaudited results for the six months ending 30 September 2016
("H12017" or "the Period"). The Company's H12017 conference call
will be webcast live at https://investor.rhythmone.com on 15
November 2016 at 9:30AM GMT; 4:30AM EST; 1:30AM PST.
Financial Highlights
Six months Six months
to to
30 September 30 September
2016 2015
(unaudited) (unaudited)
$000 $000
------------- -------------
Revenue 80,729 91,388
% Core 83% 69%
% Non-Core 17% 31%
Adjusted EBITDA(1) (2,526) (6,840)
Adjusted Loss for the period attributable
to equity holders of the parent (6,503) (13,399)
Loss for the period attributable
to equity holders of the parent (10,897) (79,517)
Cash & Marketable Securities 69,234 82,341
-- Structural transformation to Core mobile, video and
programmatic products is now complete, focus moves to growth and
profitability;
-- Accelerated investments and success in Core programmatic
products drove financial performance ahead of expectations in the
first half of the year, across key metrics:
- Revenues of $80.7M (H12016: $91.3M), 83% from Core
products;
- Core product revenues of $67M (H12016: $63M);
- Programmatic revenues of $55M (H12016: $38M), 45% growth
year-on-year;
- Adjusted EBITDA(1) loss of ($2.5M), a 63% improvement over
H12016.
-- Achieved profitability on an adjusted EBITDA(1) basis in each
of the last two months of the Period, significantly ahead of
internal estimates;
-- Invested approximately $7M in development and capital
investments, working capital and restructuring and
acquisition-related costs, to end the Period with a strong
debt-free balance sheet with over $69M in cash, cash equivalents
and marketable securities;
-- Continued cost discipline, with OpEx during the Period of
$36.5M (H12016: $49.2M), a decrease of more than 26% or $12.7M over
the previous year.
Operational Highlights
-- Continued to build and scale an industry leading programmatic
platform, RhythmMax, which now drives a majority of the Company's
revenues and represents a c. $100M per year run rate business that
was entirely built within one year;
-- Continued drawdown of Non-Core and transition of
non-programmatic products to the programmatic platform;
-- Increase in supply footprint with access to over 440M unique
users across all formats, establishing platform as one of top five
Supply side players by size, globally;
-- Total programmatic transaction volume grew by over 85%
year-on-year, with notable increases in quality and pricing;
-- Programmatic KPIs for the Period are as follows:
Metric Q12016(2) Q22016(2) Q12017 Q22017
------------------- ---------- ---------- ---------- -------- --------
Volume Billions 1,242.1 2,741.6 3,516.6 3,924.2
------------------- ---------- ---------- ---------- -------- --------
Desktop(3) % n/a n/a 49.9 51.5
------------------- ---------- ---------- ---------- -------- --------
Mobile(3) % n/a n/a 50.1 48.5
------------------- ---------- ---------- ---------- -------- --------
Fill Rate(4) % 2.61 1.18 0.49 0.62
------------------- ---------- ---------- ---------- -------- --------
Price(5) $/CPM 0.60 0.58 1.42 1.25
------------------- ---------- ---------- ---------- -------- --------
-- Simultaneously launched in 9 international markets, including
Canada, Australia and 7 EU countries, which collectively now
represent over 10% of Core programmatic revenues;
-- Enhanced proprietary brand safety technology ("RhythmGuard")
through integrations with all major traffic quality partners,
including White Ops, Integral Ad Science, DoubleVerify, Moat and
Pixalate, and ad quality verification partners The Media Trust and
RiskIQ;
-- Added or ramped over 50 new and existing programmatic demand
side partners, including marquee platforms such as The Trade Desk,
DataXu and Mediamath;
-- Added over 18 supply partners, including SpotXchange, Facebook (LiveRail) and Teads.tv;
-- Forged or expanded direct relationships with major brands
such as Honda, McDonalds, Dr. Pepper Snapple Group, Ford, Exxon,
Nestle, Verizon and T. Marzetti Company.
Commenting on the results, S. Brian Mukherjee, CEO of RhythmOne,
said: "It is encouraging to see the financial results of the
Company begin to reflect our strategic and operational focus on
Core mobile, video and programmatic products, as we continue to
draw-down Non-Core and non-programmatic product lines. Driven by
the 45% growth in programmatic revenues, Core products now
represent 83% of total revenues, compared with 69% in H12016.
Within the course of a year, the team has successfully built and
scaled an Industry-leading, +$100M run-rated programmatic business,
which ranked as high as #3 in quality and #4 in size globally.
RhythmMax maximizes the efficiency of brand-consumer interactions
by delivering unique audiences of uniform quality, on a unified
platform, at scale. Programmatic revenues during the Period grew
well in excess of Industry growth rates - a trend we expect to
continue.
We believe that the significant steps we took last year to
realign the business around our Core capabilities have begun to
show evidence of success, and have set us on course for both
top-line revenue growth and a return to full year profitability
this financial year. The strong traction gained with Core products,
now enables us to accelerate the planned drawdown of Non-Core
product lines, and explore acquisitions in order to augment our
strategic capabilities and catalyze financial performance in the
second coming of ad tech - characterized by fewer, fully integrated
players that deliver scale, scope, reach and effectiveness to
advertisers and publishers alike."
Notes:
1. This press release contains references to adjusted EBITDA and
adjusted Loss for the Period attributable to equity holders of the
parent. These financial measures do not have any standardized
meaning prescribed by IFRS and are therefore referred to as
non-GAAP measures. The non-GAAP measures used by RhythmOne may not
be comparable to similar measures used by other companies. Adjusted
EBITDA is defined as profit/(loss) attributable to equity holders
of the parent before interest, other expenses, taxes, depreciation
and amortization, share based payment expense, acquisition and
exceptional costs. Management believes that this measure is a
useful supplemental metric as it provides an indication of the
results generated by the Company's principal business activities
prior to consideration of how the results are impacted by
non-recurring costs, how the results are taxed in various
jurisdictions, or how the results are affected by the accounting
standards associated with the Group's share based payment
expense.
2. Q12016 and Q22016 KPIs are adjusted to reflect on-platform
(RhythmMax) and off-platform (third-party) programmatic
products.
3. Volume of transactions (ad requests) processed through the
platform. Volumes are continuously optimized for performance and
yield.
4. Proportion of the transaction volume monetized. The Q12016
and Q22016 adjustments now include combined on-platform and
off-platform metrics, which resulted in year-on-year increases in
volume and price, and a decrease in the fill rate due to improved
quality controls and yield optimization.
5. Average price across all ad formats, expressed as Cost per Mille or Thousand Impressions.
Press Contacts for RhythmOne
Analyst and Investor Financial Media Contacts
Contact Edward Bridges / Charles
Dan Slivjanovski Palmer
RhythmOne plc FTI Consulting LLP
(UK) 020 3727 1000
Nomad and Broker for
RhythmOne
Nick Westlake (Nomad)
/ Lorna Tilbian /
Toby Adcock / Mark Lander
Numis
Overview
As indicated at the start of the Period, the operating theme for
Financial Year 2017 is sustainable growth and a return to
profitability, accomplished through a dramatic shift in the
revenue, product and cost profile of the Company. Over the past six
months, RhythmOne continued to invest in its Core strategic
capabilities of mobile, video and programmatic trading.
Concurrently, the Company accelerated its drawdown of certain
historical Non-Core and also non-programmatic product lines that no
longer are considered strategic to future growth and will cease to
be the focus of ongoing operations.
Performance in H12017 was led by strong growth in Core revenues
and, in particular, programmatic trading. The Company achieved
profitability on an adjusted EBITDA1 basis in each of the last two
months of the Period, significantly ahead of internal estimates.
This performance was fueled by the rapid expansion of the Company's
unified programmatic platform, RhythmMax, which led 45% growth in
programmatic revenues year-on-year, contributing $55M in revenue
during the Period, compared with $38M during H12016. The platform
also experienced an 85% increase in transaction volumes
year-on-year.
The Company's product investments during the Period were fully
aligned with key Industry growth vectors. Programmatic trading is
now well established as the primary buying mechanism for digital
advertising. Over 73% of digital display ad spend is now executed
through programmatic channels. This number is expected to grow to
over 82% of spend by 2020. This trend applies not only to desktop
display advertising, but also to the rapidly growing mobile and
video segments. Over 75% of mobile display and over 60% of video
advertising will be programmatic in 2016; mobile and video are
expected to grow at compound annual growth rates of 29% and 31%
respectively over the next two years. This points to an important
shift in how online advertising is being bought and sold - no
longer are advertisers buying ads on specific websites as a proxy
for audience segments; rather, they are buying actual audiences,
across connected devices and ad formats, based on measurable data
and in real time.
These fundamental shifts are ushering the "Second Coming of
AdTech". Within its Core focus, the Company has identified two key
areas of investment and differentiation, in order to drive ongoing
growth within this new landscape:
1) A unified, cross format, cross device programmatic
advertising platform; and
2) Owned or controlled, unique, high quality audiences
1) Unified Programmatic Advertising Platform
RhythmOne spent much of calendar year 2016 focused on
integrating its supply footprint. The RhythmMax programmatic
platform was purpose built to deliver highly targeted audiences
across all devices and formats, at significant scale. A majority of
the Company's supply sources is now aggregated and accessible
through RhythmMax, providing advertisers with an efficient and
effective, turnkey solution.
During the Period, RhythmOne integrated its platform with over
30 industry-leading programmatic supply and demand partners,
including marquee names such as Facebook, SpotXchange and Teads.tv.
The Company expects demand-side integrations to continue to ramp,
including through international expansion across key EMEA and APAC
regions, with a corresponding increase in programmatic revenues.
Simultaneously, RhythmOne attracted new and repeat advertisers,
including Honda, McDonalds, Dr. Pepper Snapple Group, Ford, Capella
University, Crystal Farms, T. Marzetti Company, Exxon, Nestle,
Reckitt Benckiser and Verizon.
Leveraging its industry-leading RhythmGuard technology,
RhythmOne has taken highly visible measures on brand safety - a
prerequisite for attracting and maintaining premium demand. Ad
fraud, viewability and verification continue to be key areas for
advertisers. According to the Association of National Advertisers
(ANA), ad fraud will cost advertisers $7.2B in 2016, up nearly $1B
since 2015. During H12017, the Company continuously enhanced its
proprietary brand safety filtering technology, RhythmGuard, which
eliminates suspicious and underperforming traffic before it reaches
the marketplace - improving ROI for advertisers and maximizing
yield for quality publisher partners.
Complementing its RhythmGuard brand safety initiative, RhythmOne
also partnered with all major viewability and verification vendors,
including White Ops, Integral Ad Science, DoubleVerify, Moat and
Pixalate, whom the Company believes will be instrumental in helping
to establish common standards for the Industry. RhythmOne has
contributed to shaping these standards through its work with
OpenVV.org, membership in the Interactive Advertising Bureau
("IAB") and participation in the Trustworthy Accountability Group
("TAG") initiative. Equally, on the Demand side, the Company
further enhanced its creative scanning and ad verification
processes through integration with The Media Trust and RisqIQ, the
two leading ad quality vendors. Complementing the significant
scale, scope and reach of RhythmMax, brand safety has become one of
the fundamental tenets of the platform. RhythmOne remains committed
to providing the highest levels of quality assurance to its
advertising partners as it seeks to maximize the return on digital
advertising spend.
2) Unique Audiences
In addition to platform investments in RhythmMax, the Company
also has sought to distinguish its supply footprint by offering
unique owned, controlled and first-look audiences that are
compelling to advertisers and brands. During the Period, RhythmOne
made significant improvements to the content and targeting features
available through its owned and operated websites: All Music,
SideReel and Celebified, serving as a critical test platform to
enhance its quality and targeting algorithms for the Company's
controlled and extended supply. In addition, the Company
significantly improved the performance of its Software Development
Kit (SDK) that is distributed to mobile application developers, to
provide ad blocking mitigation tools, offer further MOAT
integration and support additional browsers. The Company also
continued to develop several new tools and services to attract and
retain quality, high-value publisher partners. Header bidding is
one such tool. Also known as advance bidding or pre-bidding, header
bidding is an increasingly popular programmatic technique that
allows Publishers to offer their inventory in advance to select
partners, before putting it up for general auction through the Ad
Server. By letting multiple, higher value demand sources bid on the
same inventory at the same time instead of through a waterfall
structure, publishers in theory are able to increase their yield
and better monetize their content. The Company has developed a
header bidding solution that allows publishers to make RhythmOne
one of their select demand partners.
Another pioneering initiative designed to enhance the experience
for RhythmOne publishers is called Support Free Content. This
initiative arose out of the need to recapture revenues lost due to
ad blocking. Support Free Content helps publishers address ad
blocking by offering consumers choice - gating their access to
publisher content via a set of monetization options that range from
subscription, to white listing within their ad-blocker, to
downloading a browser extension that provides alternative avenues
for monetization. Finally, through its Advanced Creative Platform
(ACP), RhythmOne continues to invest in creative innovation. In
alignment with recently released guidelines from the Interactive
Advertising Bureau (IAB), RhythmOne is expanding its ad portfolio
to take advantage of the latest features and standards that allow
for greater creative innovation and interaction within standard
"polite", or programmatic-friendly, ad units. As programmatic
adoption continues to grow, the Company believes that the ability
to offer bespoke, high-impact creative ad units that are
contextually relevant and exclusive to supply within its platform,
will be a key differentiator - and another proxy for unique
inventory.
Market
Online advertising continued to demonstrate strong growth in
2016. Today, worldwide digital ad spend accounts for 35% of total
media ad spend, or approximately $195B of over $550B in total - and
is projected to grow at a 15% CAGR over five years (2016-2020),
nearly 6 times the rate of population growth and faster than any
other industry. By 2020, worldwide digital ad spend is projected to
ramp significantly to $336B, which would equate to almost half
(46%) of total media ad spend of over $730B.
Programmatic trading, or the automated buying, selling and
fulfillment of ads using technology, is now the most common buying
modality for display, mobile and video advertising. In the US,
eMarketer estimates that programmatic display ad spend will reach
$25B in 2016. Of that amount, mobile programmatic accounts for
seven out of ten programmatic dollars (70%, or $18B) spent. Mobile
- and especially mobile video - is quickly becoming the advertising
format of choice, and is gaining programmatic adoption. In fact,
three out of four US mobile display ad dollars will transact
programmatically in 2016 (75%). This represents a slightly larger
share than programmatic digital display ad spending as a whole
(73%), mainly because of the influence of social network ad
buying.
Key sector trends of note include:
1. The majority of US digital display ad dollars (73%, $25B)
will be spent through programmatic channels, and that share is
expected to rise dramatically (82%, $38B) by 2018. Much of this
growth is led by programmatic spend on mobile and video
advertising. Mobile programmatic accounts for 70% of all
programmatic spend overall. For video, 2016 will mark the first
year in which more than half of US digital video advertising will
be sold programmatically - accounting for 60% of total video ad
spend. Within programmatic trading, there is a distinct and growing
sub-trend around "Direct" or "Private Marketplace" transactions,
where supply and demand partners pre-select one another.
2. An overwhelming majority of Internet users consumes video. In
the US, nearly two-thirds of the population views digital video.
Concurrent with increased consumption, video advertising spend is
projected to increase at 15% CAGR over the next five years.
According to eMarketer, advertisers will spend $10 billion on video
this year and that figure is projected to increase significantly by
2020, reaching an estimated $18 billion.
3. Smartphone and tablet use is surging - and advertising
dollars are following suit. In 2016, nearly 80% of US Internet
users use a smartphone and 63% use a tablet. In line with this
trend, mobile advertising spending in 2016 is expected to outpace
desktop/laptop spending by $20 billion. Within mobile, video ad
spending is projected to reach nearly $4.5 billion in 2016 (almost
10% of total mobile spending).
4. Ad blocking in the US continues to be a concern for online
advertisers. In 2016, an estimated 70M people in the US will use an
ad blocker, a jump of 34% over 2015. Next year, that figure is
anticipated grow by another 24%, to 87M people. Globally, ad
blocking has seen growth of nearly 41% over the past 12 months with
nearly 200M people today using ad-blocking software. The estimated
impact of this trend on publishers is a potential revenue loss of
between 10% and 50%. Publishers are employing a number of tactics
to preserve monetization - serving more "native" ads that are
delivered directly from publishers' content management systems so
that they are harder to block, installing anti-ad blocking software
and enabling pay walls to access content. Currently, the impact of
ad blocking on RhythmOne's business has been minimal, since the
Company only counts unblocked inventory in its opportunity set.
However, ad blocking does highlight a larger trend - the need to
establish a sustainable value exchange equation that is respectful
of consumer choice, impactful for the advertiser, sustainable for
the publisher and effective at scale, which makes the Company's
investments in unique supply and publisher tools even more
critical.
5. Ad fraud, viewability and verification continue to be
top-of-mind for advertisers. The Industry has taken critical steps
to monitor internally and self-correct this issue. According to the
ANA, ad fraud will cost $7.2B in 2016, up nearly $1B since 2015.
Creating an environment for clean, trustworthy transactions is an
industry imperative both for the supply and demand sides of the
value chain. The Company's proprietary RhythmGuard brand safety
technology has been a significant and differentiating asset,
helping to ramp existing Demand sources and onboard new partners
during the Period.
6. Another noteworthy trend is the rise of influencer and native
advertising. Both of these advertising segments allow for brands to
authentically connect with consumers, either through their social
channels and communities, or as a more integrated part of the web
experience. By 2021, native ad spending will more than double to
reach $36.3 billion. There is also a significant opportunity to
realize economies of scale by delivering these types of advertising
programs programmatically. RhythmOne launched its RhythmInfluence
and RhythmContent offerings during the Period, allowing the Company
to participate in the growing spend associated with these channels.
Both offerings tap into the Company's programmatic inventory for
increased scale and efficiency.
7. Proprietary data segmentation is driving efficient audience
targeting. The ability to marry third-party segments with a brand's
first party data is one of the ways advertising technology
platforms are seeking to differentiate themselves. According to the
IAB, the number one topic that will command the lion's share of
marketers' attention in 2016 is cross-device audience recognition.
One of the key benefits that RhythmOne provides is the ability to
leverage data across its significant supply footprint, including
300M device IDs and data from campaigns run across the Company's
platform. Not only does this allow RhythmOne to offer more
effective cross-device targeting, it also presents an opportunity
to enhance location and beacon-based targeting, as well as dynamic
ad delivery. The Company has already begun to explore packaging
this data in ways that resonate with advertisers, while maintaining
Consumer privacy - making its campaigns more attractive because of
their ability to reach discreet user segments with a compelling
message across devices and formats, at scale.
8. The opportunity is global. Total worldwide ad spend is set to
top out at $195 billion in 2016. Of that, 37% is being spent in the
US ($72.1 billion). This leaves a significant opportunity for
growth internationally, especially via programmatic advertising. By
2019, global spend is projected to be about even across desktop
banner, desktop video, mobile banner and mobile video. This growth
trajectory aligns with RhythmOne's plans to expand its programmatic
offering. The Company launched the platform in 9 new international
markets during the Period, with plans to add additional EU and APAC
markets in calendar year 2017.
9. Industry consolidation continues to increase with the "Second
Coming of Ad Tech." Figures released by Ad Ops Insider reveal there
were over 125 significant M&A transactions in the Media space
from January-October 2016, with an estimated value of over $129B -
including such large deals as AT&T (Time Warner), with
Microsoft (LinkedIn) and Verizon (AOL and Yahoo!) being the most
notable within the Ad Tech subsector. Point solutions are becoming
increasingly unsustainable and some platforms that have achieved
substantial scale have not yet hit key profitability milestones.
Industry consolidation also represents a potential path to scale
quickly. As parts of the ecosystem combine, there will be
opportunity to augment the Company's supply footprint. During the
period, RhythmOne continued to actively assess a number of
strategic M&A opportunities across Demand, Audience, and
Performance segments of the ecosystem, as a means to accelerate
revenue scale, profitability and long-term competitiveness.
Technology & Products
Throughout the Period, RhythmOne continued to invest in
products, platforms, research and development, with a focus on
enhancing and expanding the Company's programmatic trading
capabilities. The Company also invested in products and services to
attract high-quality publishers. The RhythmMax platform grew
sharply and the Company processed over 7 trillion programmatic
requests during the Period (up 86% year-on-year), or on average 40B
requests per day.
RhythmMax now provides a centralized platform to access
cross-device, cross-format RhythmOne inventory across Owned,
Controlled and Extended supply sources. It also provides
advertisers with the flexibility to purchase the Company's supply
through their desired buying modality, whether traditional direct
deals, private "walled garden" marketplaces with closed site lists,
or via auction-based mechanisms - all of which use the OpenRTB
(Real-Time Bidding) protocol. Through RhythmMax, advertisers can
reach target audiences to achieve measurable ROI at their desired
spend level through a single entry point.
To support this growth, RhythmOne has updated its international
data centers and increased capacity (server and network) across its
infrastructure. These integrations let agencies and brands access
RhythmOne's global inventory on-demand. With programmatic trading
gaining in prominence, RhythmOne's unified platform allows the
Company to represent its inventory through automated trading
channels in a highly efficient manner, at scale. However, the
average fill rate of 0.56% during the period means that less than
1% of this supply was monetized - representing a massive, captive
growth opportunity, as additional demand integrations are
completed. Importantly, high-value ad formats such as video, rich
media and native, remain to be fully integrated and scaled, which
could materially increase both fill rate and price.
RhythmOne also made critical enhancements to its RhythmGuard
technology, including the development of automated creative
scanning and ad quality verification processes. These added
protections help to increase transparency around supply and demand
quality. The result is a highly differentiated marketplace
proposition that allows the Company to enrich inventory made
available to advertisers through its programmatic channels, and
drive greater demand. Through RhythmMax, the Company can provide
one of the cleanest sources of pre-filtered, verified and
targetable inventory in the Industry, at scale. These capabilities
make the platform strategically important to key ecosystem
partners, including Mobile and Cable Carriers, Web, Video and App
Developers, Content Publishers, Trading Desks, Agencies and
Marketers. During the period, the Company ranked as high as #3 on
Pixalate's Trusted Seller Index, featuring in the top 2% of
Industry peers globally.
On the supply side, RhythmOne developed several tools designed
to attract and retain high-quality publisher and app developer
partners. Specifically, the Company built and released header
bidder functionality, which helps advertisers better monetize their
inventory. In addition, as part of the Company's Support Free
Content initiative, RhythmOne built a tool that helps publishers
address ad blocking by offering consumers choice - gating their
access to publisher content via a tree of monetization options. The
release of this feature on the Company's owned and operated
properties resulted in engagement rates in excess of 80%, a
dramatic drop in ad blocking from 18% to less than 6%, and a 10%
lift in revenues. In addition, the Company released a new version
of its software development kit (SDK) for mobile app developers,
allowing for easier installation and campaign management, as well
as deeper reporting features. The SDK supports all standard video
and rich media ad units and includes emerging viewability standards
for both display and video.
Finally, RhythmOne also made enhancements to its Advanced
Creative Platform (ACP), a self-serve utility that allows demand
partners to dynamically build custom rich media ads. ACP is
expected to drive parallel revenue streams - a modest
software-as-a-service (SaaS) revenue from demand partners that
access the tool independently for ad production, and greater
incremental media fees for advertisers that use the tool as a
value-add platform within the RhythmOne programmatic
marketplace.
These developments represent a significant step forward as the
Company bundles its products and technology to better serve
advertisers and publishers in a competitive and challenging
marketplace, and continues to invest in capacity to drive future
growth.
Integration and Operating Discipline
In line with its recent integration initiatives, the Company has
reduced its headcount to 265 from a peak of over 364 employees, and
has consolidated offices from 21 to 11 globally. RhythmOne also
built a highly efficient and scalable hybrid cloud infrastructure
that facilitated reduction of its operations infrastructure from 12
legacy and acquired data centers to 5 globally distributed ones.
During the Period, RhythmOne made significant enhancements to its
infrastructure in Amsterdam, enabling the Company to better serve
the EMEA market.
The Company continues to exercise strong operating discipline,
with OpEx during the Period of $36.5M (H12016: $49.2M), a decrease
of more than 26% or $12.7M over the previous year. Moreover, the
Company has now fully integrated its technology stack and is
beginning to reap the benefit of gearing inherent to this
operational model.
Financial Highlights
During the Period, revenue totaled $80.7M, compared with $91.4M
in revenue reported for the half year ended September 2015
(H12016). The Company saw strong revenue growth in its Core
products including programmatic, mobile and video ad formats, which
accounted for 83% of the overall H12017 revenues versus 69% in
H12016, as it continued to draw down Non-Core and non-programmatic
revenues. Programmatic revenues have grown 45% year on year,
accounting for 83% of total Core revenues. Adjusted EBITDA for
H12017 was ($2.5M) compared with adjusted EBITDA of ($6.8M) for
H12016, a 63% reduction. Loss from operations for the period was
($10.7M) which decreased from ($79.2M) for H1-2016. Adjusted loss
from operations for H12017 was ($6.3M) compared with an adjusted
loss from operations of ($13.1M) for H12016.
The total expense base for H1 2017 was $87.0M compared with
$104.5M for H1 2016, a 17% reduction. Cost of revenues of $50.6M
increased to 62.6% of revenues compared with 60.5% last year,
driven by a shift in product mix. Operating expenses of $36.5M
decreased from $49.2M, a 26% drop year-on-year, driven primarily by
the benefits accrued due to prior year cost reduction initiatives
and operational improvements.
Total loss for the period was ($10.9M) compared to ($79.5M) for
H1-2016. Adjusted net loss for H1 2017 was ($6.5M) compared with an
adjusted net loss of ($13.4M) for H12016, a 54% reduction year on
year.
RhythmOne's cash and marketable securities as at 30 September
2016 totaled $69.2 million, compared with $78.5 million at 31 March
2016. The decrease of $9.3 million during the Period included $2.5
million in Adjusted EBITDA loss, $2.0 million to fund working
capital seasonality, $3.0 million in development and capital
investments, $1.3 million in restructuring charges, and $0.5
million in acquisition related costs. The principal risks and
uncertainties affecting the Group have not changed since those
disclosed in the annual report for the year ended 31 March
2016.
Outlook
Building on the results of H12017, the Company anticipates
continued Core revenue growth throughout Financial Year 2017, led
by its programmatic capabilities. The industry is fast culminating
in the second coming of Ad Tech, characterized by fewer, dominant,
better integrated players that are able to deliver sustainable
value to both Demand and Supply sides of the value chain. The
Company now has the unique combination of technology, talent and
relationships in place to scale both organic and inorganic growth
as the Industry continues to evolve and consolidate.
RhythmOne expects its unified programmatic platform, RhythmMax,
to be the primary engine for growth across the Company's selling
channels, facilitating the delivery of targeted, quality audiences,
across devices and formats, at scale - globally. Programmatic
growth in Financial Year 2017 is anticipated to derive from a
number of well-understood drivers, including: international
expansion across EMEA and APAC regions; the addition of unique and
exclusive supply, fueling greater demand, fill rates and pricing;
the delivery of high impact, high margin video and rich media
campaigns programmatically; higher pricing as a result of
data-driven targeting capabilities; increased throughput from
existing supply and demand side relationships; new direct and
programmatic supply and demand side partners; and the establishment
of private (trading) marketplaces to directly connect preferred
supply and demand within the RhythmMax platform.
In addition to organic growth, the Company also is assessing a
number of strategic M&A opportunities across Demand, Audience
and Performance segments of the ecosystem, as a means to fortify
its programmatic base, and augment its scale, financial performance
and long-term competitiveness.
RhythmOne enters the second half of the financial year in a
confident position, with a product portfolio that is well aligned
with Industry growth trends. Based on current visibility and
despite the planned simultaneous drawdown of Non-Core and
non-programmatic products, the Company reaffirms its expectations
for both top-line revenue growth and a return to full-year
profitability in FY2017.
RHYTHMONE PLC
CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)
Results for the six months to 30 September 2016 (in thousands,
except per share amounts)
Six Six
months months
to to
30 September 30 September
2016 2015
(unaudited) (unaudited)
Note $'000 $'000
----- ------------- -------------
Revenue 80,729 91,388
------------- -------------
Cost of revenue (50,554) (55,335)
Research and development (12,759) (17,895)
Sales and marketing (16,806) (23,234)
Administrative expenses (6,925) (8,059)
Total operating cost and expenses
before amortization of purchased intangibles (87,044) (104,523)
-
Loss from operations before acquisition
and exceptional costs and amortization
of purchased intangibles* (6,315) (13,135)
Amortization of purchased intangibles
Research and development (310) (1,984)
Sales and marketing (2,227) (2,990)
Administrative expenses (125) (125.0)
(2,662) (5,099)
Acquisition and exceptional costs 7 (1,716) (60,992)
Loss from operations (10,693) (79,226)
Other expense (16) (27)
Finance income 300 10
Finance costs (84) (81)
Loss before taxation (10,493) (79,324)
Tax 3 (404) (193)
Loss for the period attributable
to equity holders of the parent
before acquisition and exceptional
costs, amortization of purchased
intangibles and other (expense)/income** (6,503) (13,399)
============= =============
-
Loss for the period attributable
to equity holders of the parent (10,897) (79,517)
============= =============
Note Cents Cents
----- ------------- -------------
Earnings per share
Basic 4 (2.69) (19.75)
============= =============
Adjusted basic* 4 (1.61) (3.33)
============= =============
Diluted 4 (2.69) (19.75)
============= =============
Adjusted diluted* 4 (1.61) (3.33)
============= =============
*Adjusted for acquisition and exceptional costs of $1.7m
(FY2016:$61.0m) and amortization of purchased intangibles of $2.7m
(FY2016: $5.1m).
** Adjusted for acquisition and exceptional costs of $1.7m
(FY2016:$61.0m), amortization of purchased intangibles of $2.7m
(FY2016: $5.1m), and other expense of $16 thousand (FY2016: other
expense of $27 thousand).
RHYTHMONE PLC
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
For six months ended 30 September 2016
Six
Six months months
to to
30 September 30 September
2016 2015
(unaudited) (unaudited)
$'000 $'000
------------- -------------
Loss for the period (10,897) (79,517)
Other comprehensive loss which
is potentially reclassifiable
to loss:
Exchange difference on translation
of foreign operations 208 82
Unrealized gains on Marketable
Securities 30 -
Total comprehensive loss for
the period, net of related tax
effects (10,659) (79,435)
============= =============
RHYTHMONE PLC
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
As at 30 September 2016
(in thousands)
As at As at
30 September 31 March
2016 2016
(unaudited) (audited)
Note $'000 $'000
----- ------------- ----------
ASSETS
NON-CURRENT ASSETS
Goodwill 37,207 37,207
Intangible assets 22,127 24,200
Property, plant and equipment 3,533 3,358
Other receivables and restricted
cash 620 828
Deferred tax asset 19,192 19,208
Marketable securities 28,476 29,539
111,155 114,340
------------- ----------
CURRENT ASSETS
Trade receivables 33,248 22,825
Other receivables 2,556 2,422
Cash and cash equivalents 11,641 18,222
Marketable securities 29,117 30,725
76,562 74,194
------------- ----------
TOTAL ASSETS 187,717 188,534
------------- ----------
LIABILITIES
NON-CURRENT LIABILITIES
Deferred tax liability (424) (318)
Other payables (1,900) (1,679)
Provisions for liabilities and
charges (564) (5)
(2,888) (2,002)
------------- ----------
CURRENT LIABILITIES
Trade and other payables (37,638) (29,894)
Provisions for liabilities and
charges (412) (700)
(38,050) (30,594)
------------- ----------
TOTAL LIABILITIES (40,938) (32,596)
NET ASSETS 146,779 155,938
============= ==========
SHAREHOLDERS' EQUITY
Share capital 5 7,554 7,537
Share premium account 5 168,083 168,045
Shares to be issued 6 24 24
Share based compensation reserve 28,035 26,590
Currency translation reserve (8,628) (8,836)
Merger reserve 65,208 65,208
Accumulative Other Comprehensive
Income 49 19
Retained deficit (113,546) (102,649)
TOTAL EQUITY 146,779 155,938
============= ==========
RHYTHMONE PLC
CONDSED CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
For the six months to 30 September 2016 (in thousands)
Six
Six months months
to to
30 September 30 September
2016 2015
(unaudited) (unaudited)
Note $'000 $'000
----- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from operations (10,693) (79,226)
Adjustments for: -
Depreciation and amortization 5,006 18,051
Share based payments 2 1,445 2,334
Impairment of goodwill - 50,321
Loss on sales of computer equipment - (26)
Change in provisions 4 (371)
Foreign exchange gain 267 75
Operating cash flows before movements
in working capital (3,971) (8,842)
Changes in operating assets and
liabilities:
(Increase) / decrease in trade
and other receivables (10,947) 6,077
Increase / (decrease) in trade
and other payables 8,997 (7,159)
Net cash used in operating activities (5,921) (9,924)
Income taxes paid (39) (151)
Net cash used in operating activities (5,960) (10,075)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net interest received 215 (71)
Purchase of property, plant and
equipment (435) (382)
Capitalization of internal development
charges (1,902) (2,414)
Acquisitions, net of cash acquired (499) -
Sales / (Purchase) of marketable
securities 2,701 (60,000)
Net cash generated from / (used)
in investing activities 80 (62,867)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net payments on finance lease (730) (489)
Proceeds from issuance of shares 55 32
Net cash used in financing activities (675) (457)
------------- -------------
Net decrease in cash and cash
equivalents (6,555) (73,399)
Beginning cash and cash equivalents 18,222 95,734
Effect of foreign exchange on
cash and cash equivalents (26) 14
Cash and cash equivalents at end
of period 11,641 22,349
============= =============
RHYTHMONE PLC
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(UNAUDITED)
For the six months to 30 September 2016 (in thousands)
SHARE
ORDINARY SHARE SHARES BASED CURRENCY RETAINED
TO
SHARE PREMIUM BE COMPENSATION TRANSLATION MERGER OTHER {DEFICIT)/ TOTAL
CAPITAL ACCOUNT ISSUED RESERVE RESERVE RESERVE RESERVES EARNINGS EQUITY
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
--------- -------- ------- ------------- ------------ -------- --------- ----------- ---------
Balance as at
1 April 2015 7,502 168,008 1,686 22,175 (8,802) 63,554 (10,426) 243,697
Net loss for
the
year - - - - - - (79,517) (79,517)
Other
comprehensive
income - - - - 82 - - 82
Total
comprehensive
loss for the
year - - - - 82 - (79,517) (79,435)
Issue of
shares,
net of costs 16 16 - - - - - 32
Credit to
equity
for share
based
payments - - - 2,334 - - - 2,334
Tax movement on
share options - - - - - - (24) (24)
--------- -------- ------- ------------- ------------ -------- --------- ----------- ---------
Balance as at
30 September
2015 7,518 168,024 1,686 24,509 (8,720) 63,554 (89,967) 166,604
========= ======== ======= ============= ============ ======== ========= =========== =========
Balance as at
1 April 2016 7,537 168,045 24 26,590 (8,836) 65,208 19 (102,649) 155,938
Net loss for
the
year - - - - - - (10,897) (10,897)
Other
comprehensive
income - - - - 208 - 30 238
Total
comprehensive
loss for the
year - - - - 208 - 30 (10,897) (10,659)
Issue of
shares,
net of costs 17 38 - - - - - 55
Credit to
equity
for share
based
payments - - - 1,445 - - - 1,445
Balance as at
30 September
2016 7,554 168,083 24 28,035 (8,628) 65,208 49 (113,546) 146,779
========= ======== ======= ============= ============ ======== ========= =========== =========
RHYTHMONE PLC
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
(UNAUDITED)
1. General information, basis of preparation and accounting
policies
RhythmOne plc ("the Company") is incorporated in England and
Wales under the Companies Act 2006. The address of the registered
office is 40 Dukes Place, London, EC3A 7NH, United Kingdom. The
Company is a public limited company, which is listed on the London
Stock Exchange (AIM).
These condensed interim financial statements were approved for
issue on 15 November 2016.
The Company and its subsidiaries provide internet advertising
services primarily to its customers in the U.S. The Group's
business is not significantly seasonal.
These condensed interim financial statements do not comprise
statutory accounts within the meaning of section 434 of the
Companies Act 2006. Statutory accounts for the year ended 31 March
2016 were approved by the board of directors on 17 May 2016 and
delivered to the Registrar of Companies. The report of the auditors
on those accounts was unqualified, did not contain an emphasis of
matter paragraph and did not contain any statement under section
498 of the Companies Act 2006. Statutory financial statements for
the year ended 31 March 2016 are available on the Company's website
www.investor.rhythmone.com.
These condensed interim financial statements have been reviewed,
not audited.
These condensed interim financial statements for the six months
ended 30 September 2016 have been prepared in accordance with the
AIM rules and with IAS 34, 'Interim financial reporting', as
adopted by the European Union. The condensed interim financial
statements should be read in conjunction with the annual financial
statements for the year ended 31 March 2016, which have been
prepared in accordance with IFRSs as adopted by the European
Union.
These condensed interim financial statements have been prepared
on a going concern basis. The directors have considered the
financial resources of the Group and the risks associated with
doing business in the current economic climate and believe the
Group is well placed to manage these risks successfully. The
directors have reviewed management's business plan setting out key
business assumptions and considered it to be reasonable and are
satisfied that the Group has adequate resources to continue in
operational existence for the foreseeable future being a period of
no less than 12 months from the date of signing of this interim
report. Accordingly, they continue to adopt the going concern basis
in preparing this interim announcement.
The accounting policies adopted are consistent with those of the
previous financial year. Amendments to IFRS's effective from the
financial year ending 31 March 2017 are not expected to have a
material impact on the Group.
The preparation of interim financial statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates. In preparing these
condensed interim financial statements, the significant judgements
made by management in applying the group's accounting policies and
the key sources of estimation uncertainty were the same as those
that applied to the consolidated financial statements for the year
ended 31 March 2016.
The group's activities expose it to a variety of financial
risks. These are discussed in detail in the group's annual
financial statements as at 31 March 2016. There have been no
changes in the risk management department or in any risk management
policies since the year end.
The directors consider that the principal risks and
uncertainties which may have a material impact on the Group's
performance in the second half of the financial year remain the
same as those outlined in the Annual report for the year ended 31
March 2016.
As discussed in detail in the Group's Annual report for the year
ended 31 March 2016, RhythmOne has one operating and reportable
segment in accordance with IFRS 8. Discrete financial information
is only available for the whole Group and the Group's chief
operating decision maker reviews financial information for the
Group as a whole.
2. Share-based payments
Included within operating expenses are the following amounts in
respect of share based payments:
Six months Six months
to to
30 September 30 September
2016 2015
(unaudited) (unaudited)
$'000 $'000
------------- -------------
Sales and marketing 259 609
Research and development 139 356
Administrative expenses 1,047 1,369
1,445 2,334
============= =============
3. Taxation
Income tax expense is recognised based on management's estimate
of the weighted average annual income tax rate expected for the
full financial year.
The tax charge for the six month period ended 30 September 2016
was $0.4 million compared to $0.2 million for the six month period
ended 30 September 2015. The tax charge for the Period represents
the best estimate of the average annual effective income tax rate
expected for the full year plus the effect of discrete items
recognized in the period. The Company has not recognized an
additional deferred tax asset for the current period losses, which
has reduced the effective tax rate, but has retained the previously
recognized deferred tax asset based on future forecasts and
expected loss utilization.
4. Earnings per share
The calculation of the basic and diluted earnings per share is
based on the following information.
Six months Six months
to to
30 September 30 September
2016 2015
(unaudited) (unaudited)
$000 $000
------------- -------------
Earnings
Adjusted* loss (used in calculation
of adjusted basic and diluted loss
per share) (6,503) (13,399)
============= =============
Loss (used in calculation of basic
and diluted loss per share) (10,897) (79,517)
============= =============
SHARES SHARES
------------- -------------
Number of shares
Weighted average number of shares
for the purpose of basic and adjusted*
basic earnings per share 404,889,693 402,613,239
============= =============
Weighted average number of shares
for the purpose of diluted and adjusted*
diluted earnings per share 404,889,693 402,613,239
============= =============
* Adjusted for acquisition and exceptional costs of $1.7m
(FY2016: $61.0m), amortization of purchased intangibles of $2.7m
(FY2016: $5.1m), and other expense of $16 thousand (FY2016: other
expense of $27 thousand).
5. Share capital
The increase of share capital in the period relates to the
issuance of 1,027,120 shares on the exercise of employee share
options.
6. Shares to be issued
The shares to be issued reserve relates to shares that are
expected to be issued to former Burst shareholders, as part of the
consideration, who have not yet submitted the paperwork to effect
the exchange of Burst shares for RhythmOne shares.
7. Acquisition and exceptional costs
In line with the way the Board and chief operating decision
maker review the business, large one-off acquisition and
exceptional costs and other costs related to acquisitions such as
amortization of purchased intangibles, are separately identified
and adjusted results are shown. The types of costs included within
acquisition costs are those which are directly attributable to an
acquisition, such as legal and accounting expenses, integration
costs, severance and retention remuneration. The types of cost
considered exceptional include restructuring charges, goodwill
impairment and change in intangible asset life.
Acquisition and exceptional costs:
Six months Six months
to to
30 September 30 September
2016 2015
(unaudited) (unaudited)
$000 $000
------------- -------------
Acquisition costs:
Severance and retention costs 148 450
Professional fees 109 200
Total acquisition costs 257 650
Exceptional costs:
Restructuring charges 1,459 1,029
Change in Intangible asset life - 8,991
Goodwill impairment - 50,322
Total exceptional costs 1,459 60,342
Total acquisition and exceptional
costs 1,716 60,992
============= =============
Restructuring charges during the current period relates mostly
to onerous leases. During the Period ended 30 September 2015 the
Company took decisive steps to build out its Core Mobile, Video and
Programmatic capabilities and began to exit and limit investments
in historical product lines that are considered Non-Core, including
certain Desktop products, services and technologies. Based on these
actions and an adjusted forecast due to weaker than expected
performance of some products, certain value of Goodwill related to
Non-Core legacy assets acquired was impaired as the recoverable
amount was less than its carrying value, leading to a non-cash
impairment charge of $50.3 million. In addition, management
assessed the useful lives of certain legacy acquired intangible
assets and consequently have recognized an accelerated amortization
charge of GBP9.0 million in the Period ended 30 September 2015.
8. Related party transactions
The directors are considered to be the Group's key management
personnel. Their remuneration is disclosed within the Directors'
Report as reported in the Statutory financial statements for the
year ended 31 March 2016 which does not form part of this report.
There were no other related party transactions in either the
current Period or prior Period.
9. Financial instruments
Marketable securities represent the only category of financial
instruments which are carried at fair value.
Marketable securities:
As at As at
30 September 31 March
2016 2016
(unaudited) (audited)
$'000 $'000
------------- ----------
Balance at beginning of the period 60,264 -
Additions 299 60,245
Withdrawal (3,000) -
Net gain transfer to equity 30 19
------------- ----------
Balance at the end the period 57,593 60,264
Less non-current portion (28,476) (29,539)
Current portion 29,117 30,725
------------- ----------
Marketable securities include the
following:
As at As at
30 September 31 March
2016 2016
(unaudited) (audited)
$'000 $'000
------------- ----------
Listed securities:
Corporate and government debt instruments 56,789 59,461
Unlisted securities:
Certificates of deposit 804 803
Total 57,593 60,264
------------- ----------
Marketable securities are denominated in US dollar. The maximum
exposure to credit risk at the reporting date is the carrying value
of the debt securities classified as marketable securities. None of
these financial assets is either past due or impaired.
There were no changes in valuation technique of the above assets
during the Period.
The fair value of the following financial assets and liabilities
approximate their carrying amount:
-- Trade receivables
-- Other receivables
-- Cash and cash equivalents
-- Trade and other payables
Independent review report to RhythmOne plc
Report on the Condensed interim financial statements
Our conclusion
We have reviewed RhythmOne plc's Condensed interim financial
statements (the "interim financial statements") in the first half
financial year 2017 results of RhythmOne plc for the 6 month period
ended 30 September 2016. Based on our review, nothing has come to
our attention that causes us to believe that the interim financial
statements are not prepared, in all material respects, in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and the AIM
Rules for Companies.
What we have reviewed
The interim financial statements comprise:
-- the Condensed consolidated balance sheet as at 30 September 2016;
-- the Condensed consolidated income statement and the Condensed
consolidated statement of comprehensive income for the period then
ended;
-- the Condensed consolidated cash flow statement for the period then ended;
-- the Condensed consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the first half
financial year 2017 results have been prepared in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the AIM Rules for
Companies.
As disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The first half financial year 2017 results, including the
interim financial statements, is the responsibility of, and has
been approved by, the directors. The directors are responsible for
preparing the first half financial year 2017 results in accordance
with the AIM Rules for Companies which require that the financial
information must be presented and prepared in a form consistent
with that which will be adopted in the company's annual financial
statements.
Our responsibility is to express a conclusion on the interim
financial statements in the first half financial year 2017 results
based on our review. This report, including the conclusion, has
been prepared for and only for the company for the purpose of
complying with the AIM Rules for Companies and for no other
purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom
this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK and
Ireland) and, consequently, does not enable us to obtain assurance
that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
We have read the other information contained in the first half
financial year 2017 results and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
Uxbridge
15 November 2016
a) The maintenance and integrity of the RhythmOne plc website is
the responsibility of the directors; the work carried out by the
auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes
that may have occurred to the interim financial statements since
they were initially presented on the website.
b) Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR EAFFLFFLKFAF
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